Brexit. Careful what you wish for.

The United Kingdom was anything but in the early hours of Friday morning. Early jubilation was overshadowed by doubt and then shock. In a few hours the unthinkable became the irreversible.

Falling out with Europe has been a bit of national sport over the last 40 years since the Common Market was first founded. The people who voted out probably thought it was a bit like voting at the Eurovision contest, some harmless fun, nothing of any real consequence . Johnson and Grove, like any Eurovision pop, frothy with very little substance .

It now seems leaving Europe is about a lot more than just making a protest vote on behalf of the national heritage. It's  the severance of a bond that was forged  post World War 2 , of course like any four decade plus relationship it had its problems but in there was a strength of unity and common purpose. 

And now business will bear the immediate brunt ,  many knew that which is why most businesses supported the Remain campaign. The decision , farcical as it is , of leaving the EU  is going to have a deep affect on the British economy with far reaching consequences, the only question is how difficult that is going to become.

How Europe sees it.

Not well. The UK was always the troublesome member of the club, but a vital member nevertheless.

The real problem is that now the UK has given notice on its membership it still needs use of the club facilities. That's because around 45% of UK exports go to the EU and UK citizens consume over 53% of their products from EU nations.

Between now and the time to activate Article 50 of the 2009 Lisbon Treaty which starts the clock on the process of withdrawing from the European Union there is going to have to be some serious negotiation by the UK needed with individual members, and that negotiation becomes a lot harder once Article 50 is triggered.

Some negotiations will be easier than others. Germany and France for example have sizable trading volumes with the UK and will want to negotiate their respective positions carefully, but others will take a much harder line and that will have an impact .

Additionally negotiations will begin immediately in Brussels on the terms of its exit and the nature of the UK’s subsequent relationship with the EU.

It is possible, say Remain campaigners, that Britain’s membership could cease and the UK revert to trading with the EU under World Trade Organization rules, which would involve exporters being hit by import taxes, or tariffs.

The UK will no longer sit at Europe’s table and that comes at a cost, and not one that was publicised anywhere near as it should have been before the vote.

How the Banks see it.

The UK economy stands at the centre of cross border financial services trade, it's why the reason why the City of London is seen as such a strong global trading centre. Having voted Out now means that any global bank in the UK will look now to reallocate staff and structure into the Eurozone

But of much greater concern is that Britain’s financial industry could face severe difficulties. It thrives on the EU’s “passport” rules, under which banks, asset managers and other financial firms in one member state may serve customers in the other 27 without setting up local operations. The Economist ran an article recently saying ‘ that is how the British subsidiaries of non-EU banks (eg, Americans, Japanese and Swiss) are able to do business throughout Europe from London, and a big reason why London has become the EU’s financial capital. In the run-up to the vote TheCityUK, a trade body that opposed Brexit, boasted that London had around 70% of the market for euro-denominated interest-rate derivatives, 90% of European prime brokerage (assisting hedge funds with trading) and more besides’.

The issue is that unless passports are renewed or replaced, they will lapse when Britain leaves. A deal is possible, the EU will probably see the UK's regulations as matching their own. But agreement will not come easily. French and German politicians have their own agenda focused firmly on building out their own financial centres and with the added issue of facing elections next year, may drive a hard bargain. No other non-member has full passport rights. Alternative models do not look attractive. Switzerland is a member of the European Free Trade Association, and has 120-odd bilateral agreements with the EU. Canada’s trade deal with the EU excludes most financial services. Norway has broad access to the single market, but has no say in setting the rules.

 What does it mean for London as a Fintech Hub (according to IB Times)?

Consensus among the technology community is that Brexit will topple London from its position as the most favoured fintech hub on the planet; the view of many startups and venture capitalists.

There are three main reasons for this – firms rely on rolling out products across Europe, many technology companies rely on developers from all over the EU, and the concomitant fear and uncertainly which will curb investment pouring into the capital’s tech scene.

We are dealing in unknowns right now, but certain legal and regulatory strictures could be mentioned, such as EU laws around data protection which firms were formerly bound by, or the European Commission’s attempt to establish a “Digital Single Market”. Adjustments to the regimes around doing business are expected to take a couple of years to iron out as a minimum.

There are around 500 fintech companies in the UK, averaging £25m revenue and a profit of £5m; paying 20% tax this equates to about £5bn over the next ten years. Players in the fintech arena predict the most likely winners would be cities like Amsterdam and Dublin which already boast a progressive regulatory environment, tax advantages and growing technology clusters.

Simon Black, CEO, of digital payment platform PPRO Group, said: “Dublin would probably benefit most within Europe: It has a big tech scene, taxes are particularly low with a 12% corporate rate and major FinTech companies such as MasterCard, Apple, PayPal and First Data already have significant operations there providing critical mass.

Black said in an emailed statement that fintech firms “will see their status as financial institutions recognised across the EU and EEA under threat, all of these businesses will not wait for trade deals to be resolved. They will immediately begin forming plans to relocate at least some of their operations, and the majority of new jobs will be outside of the UK”.

In summary Great Britain could easily become Little Britain over the next 5 years. Some hard choices are going to need to be made, and the golden days promised by the Leave campaign are at this point nothing more than a fantasy.

The United Kingdom is a diverse, dynamic, and was deserving of its place as the world’s fifth largest economy . Yesterday it was overtaken by France , its credit rating headed for a downgrade and the pound in free fall.

Hard days ahead.